Rosneft, Transneft to negotiate oil supply price for China

September 13, 2011, 8:44 UTC+3The negotiators on both sides have emphasised the “businesslike nature” of the talks and referred to the talk’s confidentiality

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BEIJING, September 13 (Itar-Tass) — Rosneft and Transneft on Tuesday are expected to discuss in the Chinese capital with representatives of China National Petroleum Corporation (CNPC) the price formula for crude oil supply to China through the Skovorodino-Daqing pipeline. It is an offshoot of the Eastern Siberia - Pacific Ocean (ESPO) main pipeline.

The negotiators on both sides have emphasised the “businesslike nature” of the talks and referred to the talk’s confidentiality. Earlier, Transneft Vice President Mikhail Barkov in an interview with Itar-Tass called the oil price formula “one of the biggest problems today in relations with China.”

According to Russian sources, the Chinese side has unilaterally reduced the amount of payments due under the oil supply contracts with Transneft and Rosneft because of its disagreement with one of the parameters used to calculate the price formula.

Rosneft is the leader of Russia’s petroleum industry, and ranks among the world’s top publicly traded oil and gas companies. The company is primarily engaged in exploration and production of hydrocarbons, production of petroleum products and petrochemicals, and marketing of outputs. Rosneft has been included in the Russian Government’s List of Strategic Enterprises and Organisations. The state holds 75.16 percent in the company (through OJSC ROSNEFTEGAZ), while approximately 15 percent of shares are in free-float (see shareholder structure).

Transneft (RTS:TRNF, MICEX: TRNFP) is a Russian state-owned business responsible for the national oil pipelines. It was founded in 1993 and owns the largest oil pipeline system in the world, with a total network length of almost 50,000 kilometres (31,000 mi). Transneft transports about 93 percent of the oil produced in Russia. The company is headquartered in Moscow and led by Nikolai Tokarev.

Transneft was established in accordance with Presidential Decree No. 1403 dated 17 November 1992 and Russian Government Resolution No. 810 dated 14 August 1993, and is the legal successor to the USSR Ministry of Oil Industry Main Production Department for Oil Transportation and Supplies (Glavtransneft), with 100 percent of shares belonging to the state. On 16 April 2007, pursuant to a presidential decree signed by president Putin, Transnefteproduct – an organisation concerned with the transportation of refined oil products, was merged into Transneft.

CNPC is the government-owned parent company of public-listed PetroChina, a company created on November 5, 1999 as part of the restructuring of CNPC. In the restructuring, CNPC injected into PetroChina most of the assets and liabilities of CNPC relating to its exploration and production, refining and marketing, chemicals and natural gas businesses. CNPC and PetroChina develop overseas assets through a joint venture, CNPC Exploration & Development Company, which is 50 percent owned by PetroChina.

The 64 kilometres (40 mi) long oil pipeline section from Skovorodino to the Amur River on Russia-China border is built by Transneft and the 992 kilometres (616 mi) long section from Russia-China border to Daqing is built by the China National Petroleum Corporation. It was completed in September 2010. In 2011, a dispute rose over payments for oil delivery through the pipeline. While Transneft has charged CNPC with violating their supply contract, CNPC is not acknowledging these claims. The contract stipulates the monthly volumes of oil according to the agreed price formula, which is less than the spot price of oil.